Govt’s net tax revenue seen to exceed budget estimate by Rs 1.3 trillion

Govt’s net tax revenue seen to exceed budget estimate by Rs 1.3 trillion

13 Jun    Finance News

Aided by better compliance, higher commodity prices and revival of economic activities, the Centre’s net tax revenue in the current financial year may be around Rs 20.62 trillion, Rs 1.28 trillion or 6.6% more than the budget estimate (BE) of Rs 19.34 trillion, according to the analysts.

Buoyancy in the gross tax revenue (GTR) could also yield an additional Rs 1.1 trillion in additional central tax devolution to states in FY23 over BE of Rs 8.17 trillion, much-needed succor to them as the 5-year GST shortfall compensation mechanism will end on June 30.

The GTR may be around Rs 29.87 trillion in FY23, Rs 2.29 trillion or 8.3% more than the BE as the goods and service taxes (GST) and direct taxes are expected to substantially overshoot their respective Bes.

The GTR performance will be coming on a high base of FY22, which saw a very high tax buoyancy of 1.74. In the last financial year, the Centre’s gross tax receipts were Rs 27.08 trillion, Rs 4.91 trillion higher than the BE.

Given that the GTR has outperformed nominal GDP growth in the past two years (see chart) thanks to the revival of economic activities and greater formalisation of the economy, the tax buoyancy could be around 1 in FY23.

The Centre’s GTR could have been about Rs 30.87 trillion in FY23, an annual growth of 14%, the same as nominal GDP growth for the year seen by analysts. However, about Rs 1 trillion is estimated to have been shaved off from GTR by the recent cut in excise duty cuts on auto fuels (Rs 85,000 crore loss) and customs duty on several items (Rs 15,000 crore) to give relief to citizens and curb inflationary pressure. So, the FY23 GTR could be settled at around Rs 29.87 trillion compared with BE of Rs 27.58 trillion.

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Besides the tax reliefs, the Centre is also estimated to spend an extra Rs 2 trillion in aggregate over the Budget Estimate on fertiliser, food and fuel subsidies in FY23. While about Rs 1.5 trillion (including Rs 20,000 crore extra expected in disinvestment receipts) additional revenues would offset the large chunk of extra spending, the bulk of the remaining Rs 50,000 crore could be adjusted through revenue spending cuts on other budget heads and a small part may be mobilised from the National Small Saving Fund (NSSF) to bridge the budget gap.

While excise and customs duty collections will be affected by duty cuts and will likely fall short of their respective BEs, the central GST collections could be Rs 0.9-1.4 trillion more than the Rs 6.6 trillion estimated in the budget for the current financial year.

Revenue secretary Tarun Bajaj last week said at an event that the monthly gross GST collections could average Rs 1.4 -Rs 1.5 trillion in FY23 thanks to steps taken to plug leakages by tightening compliance and scrutiny of GST returns to augment revenues. The FY23 budget has factored in Rs 1.2 trillion monthly gross GST (Centre + states).

“Given the robust trends for April-May 2022, and the anticipation of sustained healthy momentum of activity, we expect CGST inflows in FY23 to overshoot the BE by Rs 1.15 trillion. Assuming a 14% YoY growth in FY23 (similar to our nominal GDP growth projection), the non-excise non and CGST inflows (mostly direct taxes) are expected to surpass the FY23 BE by Rs 2 trillion,” said Icra chief economist Aditi Nayar.

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Bajaj was also very optimistic that direct taxes collections would be much better than the government projected in the budget for FY23.

“While excise and customs duties in FY23 may be lower than the FY23BE, income tax, corporation tax and GST collections are likely to compensate for the losses in excise and customs duty collection. In aggregate, gross tax collections may be around Rs 80,000 crore higher than the FY23BE,” said India Ratings chief economist DK Pant.

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